There are possibilities that the proposed 2013 budget may not achieve its fiscal consolidation and growth objectives, the managing director, Financial Directives Company Limited, Bismark Rewane has said.
Speaking at the October Business Bi monthly Economic Report for October, he said President Goodluck Jonathan may be compelled to submit to the wishes of the legislators and increase the benchmark oil price to $80.
By this, spending will increase and should oil price drop, savings obtained from crude oil sales would reduce and external reserves accretion. This he said, would be negatively affected, making it difficult for the government to respond adequately to an economic crisis.
In addition, he said the proposed oil production level of 2.53 million barrel per day mpbd for 2013 is too optimistic considering the level attained so far in 2012. “Production is currently about 2.16 mbpd and it is not likely to increase if the problems of oil theft and pipeline leakages are not addressed. Besides, revenue would be adversely affected if weakness in the global economy causes disruption in output levels. In that case, the deficit gap is expected to be larger and domestic borrowing would increase,” he said.
It said the proposed 2013 budget seems promising in its quest to promote fiscal consolidation and growth. Nevertheless, the poor performance of previous budgets makes it difficult to believe that the proposed 2013 budget would be any different.
The budget highlights showed aggregate expenditure is estimated at N4.92 trillion, an increase of 4.7 per cent from the 2012 expenditure of N4.7 trillion, and total revenue is put at N3.89 trillion, an increase of 9.3 per cent from the 2012 revenue of N3.56 trillion. Noticeably, aggregate expenditure is greater than revenue which implies that the government intends to run a deficit budget.
Rewane explained that the percentage of aggregate expenditure spent on capital expenditures increased from 28.53 per cent in 2012 to 31.34 per cent while that spent on recurrent expenditures decreased from 71.47 per cent in 2012 to 68.66 per cent.
Indicators in the proposed 2013 budget that demonstrate the commitment to fiscal prudence are the reduction in fiscal deficit to 2.17 per cent of Gross Domestic Product (GDP) from 2.85 per cent to N1.15 trillion in 2012, which is within the threshold stipulated by the Fiscal Responsibility Act, 2007.
Also, the reduction in domestic borrowing by 2.3 per cent to N727 billion, from N744 billion in 2012, is to ensure that debt stock remains at a sustainable level.
Government said it would repay maturing debt obligations through the establishment of a sinking fund of N100 billion . It also increased the benchmark oil price to $75 for 2013 from $72 in 2012
